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Schork Oil Outlook: Crude Is Overbought

Market bulls are like a traffic cop after some horrific roadside accident. They are doing their best (and succeeding) at ushering the oncoming traffic along… just keep moving folks, nothing to see here.

Of course, said roadside accident is the global economy. In this vein, we are just being ushered along… rising unemployment? Pay no attention. Withering industrial production? Nothing to see here people.

The White House’s tack towards socialism vis-à-vis the proposal to swap the government’s stake in the banks from preferred to common stock? (Common holders vote on management and policy issues, preferred do not.) Spare us your right-wing rhetoric Schork. Bottom line, the economy is still sputtering, coughing, wheezing towards the finish line as the White House looks to extend its control of capital, i.e. extends its control of the economy, i.e. tack towards socialism.

ENERGY PRICES WERE MIXED ON FRIDAY… liquids markets in London and New York moved higher because – you know why – because equities moved higher. Meantime, NYMEX natural gas sank to a seven-year low. This begs the question… if the fundamentals for oil are so bullish… then why is natural gas still tanking?

Henry Hub Natural Gas Weekly Trend… BEARISH. Why is falling natural gas production bearish, but rising crude oil production bullish?

Bottom line, demand for refined products is at post 9/11 lows. The surplus for both liquids and gas is great. However, domestic production of oil is growing and the odds of OPEC slippage re production quotas are shortening. On the other hand, domestic production of natural gas is being reined in and the LNG market into the U.S. is virtually non-existent at the moment. Yet, NYMEX crude oil continues to find a bid while the natural gas contract continues to head to $0.

In other words, crude oil is extremely overbought compared with natural gas. Here at The Schork Report, we think a regression to the mean is due.

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Stephen Schork is the Editor of, "The Schork Report"and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.